What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts fell,the price of jelly (a complementary good) fell,more firms decided to produce peanut butter,and health officials announced that eating peanut butter was good for you

Question

Quizplus · Accepted Answer

A fall in the price of peanuts will increase the supply of peanut butter, which will cause the equilibrium price to fall. A fall in the price of complementary good jelly will increase the demand for peanut butter, which will cause the equilibrium price and quantity to rise. An increase in producers of peanut butter will increase the supply, causing the equilibrium price to fall and the quantity to rise. Finally, the announcement that eating peanut butter is healthy will increase the demand for peanut butter, causing the equilibrium price and quantity to rise. Overall, these effects will lead to a bigger increase in quantity than the decrease in price, so the equilibrium quantity will rise and the price effect is ambiguous. Thus, the best choice is D.

What Would Happen to the Equilibrium Price and Quantity of Peanut